My Trump money les­son

Kapi-Mana News - - WHAT’S ON - ROB STOCK MONEY MAT­TERS rob.stock@fair­fax­me­

Don­ald Trump made a mon­key of the me­dia.

Not only didn’t the world’s me­dia be­lieve he could win the US pres­i­den­tial elec­tion, but it also ran sto­ries promis­ing global share mar­ket melt­downs if he did.

This mat­tered to peo­ple here as around a third of Ki­wiSaver money is in­vested in shares listed on over­seas share­mar­kets.

So per­va­sive was the pre­elec­tion Trump-as-eco­nomic-an­tiChrist cov­er­age, that a lot of peo­ple, my­self in­cluded, won­dered about selling all my in­vest­ments and putting ev­ery­thing into cash.

I didn’t, though I did drag my feet on rein­vest­ing some money in case a Trump vic­tory led to mar­kets crash­ing.

In my job, I get to hear a lot of peo­ple’s fore­casts for the fu­ture. They are of­ten wrong. That’s not sur­pris­ing. They are hu­mans.

To be hu­man is to be wish­ful, and wish­ful think­ing leads us to be wrong about the way the world re­ally works.


Peo­ple aren’t good at mar­ket­tim­ing Fo­cus on what you can con­trol Set your long-termstrat­egy

Hu­mans dwell on ev­i­dence that sup­ports their the­o­ries, and ig­nore ev­i­dence that doesn’t.

Mad­den­ingly, when in­di­vid­ual hu­mans are right, of­ten other hu­mans fail to recog­nise it for years and years.

And, if hu­mans suf­fer painful losses, it can lead them to worse mis­takes in the fu­ture. Many burnt in the 1987 share­mar­ket crash swore off shares for­ever and missed a mas­sive bull mar­ket.

I long ago came to be­lieve I will al­ways be rub­bish at tim­ing mar­kets.

The aca­demic lit­er­a­ture on the sub­ject re­veals I’m not alone. In­vestors con­sis­tently un­der­per­form the mar­ket through their mar­ket-tim­ing de­ci­sions.

Hence in Ki­wiSaver, and longterm re­tire­ment sav­ings, I am con­tent to drip feed money into shares and bonds ev­ery week.

When mar­kets are ris­ing, I buy shares. When they are fall­ing, I buy shares more cheaply.

Over the long run, shares should re­turn more than bonds, which should re­turn more than cash, so it should pay me to in­vest in them, and not un­der­mine the strat­egy by try­ing to time the mar­ket.

‘‘Mad­den­ingly, when in­di­vid­ual hu­mans are right, of­ten other hu­mans fail to recog­nise it for years and years.’’

I try to fo­cus on the things I can con­trol, like how much I save, in­stead of the things I can’t, like the di­rec­tion the mar­kets will take af­ter a US elec­tion re­sult.

It should be the same with your mort­gage.

No-one can con­trol what in­ter­est rates will be in three years’ time, but Home­own­ers can con­trol how much they pay off their mort­gage now, re­duc­ing the im­pact of what­ever fu­ture in­ter­est rates are. Back to Trump. I have a vis­ceral dis­taste for men of his ilk, just as I have for po­lit­i­cal dy­nas­ties like the one the Clin­tons were hop­ing to found.

Trump re­minds me of the crass, self-ag­gran­dis­ing New Zealand prop­erty ex­perts who went bank­rupt or saw their busi­nesses col­lapse in the 2000s dur­ing a gi­ant house price boom.

I did be­lieve Trump could win, hence my rein­vest­ment foot­drag­ging. Clever me.

But I also be­lieved a Trump win would cre­ate mar­ket car­nage. Stupid Me.

Trump gave me an­other les­son in why mar­ket-tim­ing is a dumb strat­egy for me.

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